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Individual Paper: Taxation and Happiness

Higher taxes may enhance the satisfaction of life while slowing down the economy

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Taxes are not only a source of revenues for the budget but also a potent economic lever. They allow for limiting of unwanted or misplaced economic activities, and promoting of positive ones. Taxes may alleviate the social pressure of inequality, and even to provoke a slowing down of the industrialized economic system while increasing the satisfaction of life.

Smart taxation is capable to address the widespread human trait (or flaw) to pursue wealth and social status without end. By applying scientific approach the high-tax policy may increase the quality of life while restraining the “surplus” economic activity.

How is it possible? It is common to speak of a “tax burden”, and for the abstract Homo economicus every expense is considered to be a pain. Even more the taxes which provide for public and mostly intangible goods.

But unhappiness is caused not so much by taxes than from the relentless pursue of wealth. After certain level of well-being, the increase of wealth has diminishing utility. Yet people keep piling wealth since there is a social sanction to strive for increasingly more money.

There are enough studies on wealth and happiness proving that not the absolute wealth but the comparing with others counts as a measure of economic success (Daniel Kahneman, Richard Easterlin, Richard Layard, Nick Marx and the New Economics Foundation, etc.). Thus, higher inequality will always tend to depress the satisfaction of living.

Bulgaria gives a proof for this: this is the country with highest income inequality in the EU, with lowest taxation level, and with lowest satisfaction of life across the EU.

(Pollution with misplaced toil)

Taxes are capable to promote the socially desirable activities and to prevent the unacceptable ones. If there was a high enough global tax on carbon emissions the economic system would react by replacing the internal combustion engines. In the same vain, taxing the “extra incomes” would cause abstaining from additional employment. High and smartly targeted taxes will not “depress” the economy but restore the balance in a complex system.

Nowadays a big portion of work has turned to “pollution”. People are not happy since they work too much and have too little time for common human activities like family, friendship, or causes. The status – driven unhappy working serves the endless economic growth which destroys the natural resources without being objectively necessary. This is a self-reinforcing mechanism which is harming people themselves, their families, and the planet. It increases the rates of extracting of oil and ores and the quantity of waste.

Taxes may put the brakes on this destructive cybernetic and psychological loop. It is a human trait to strive for higher status, and the current system equals status with wealth. But if taxing the additional work or credit high enough, taking additional employment would become unfeasible. The rates of economic growth would decrease, and people, having more time for themselves, will increase their satisfaction.

Of course this tax-based mechanism is applicable predominantly in industrialized societies. But the revenues from the extra taxation may be used for the needs of developing countries. Thus in the middle term the “growth” of production may be sustained and time given for adaptation of the credit system to post-growth realities.

It is an inherent human trait to strive for status, indifferent whether the society or the policies are left- or right leaning. It is wrong to assume that the human masses will quickly abandon their comparing bias and some “progressive new class” would emerge that is content with what it has. The poor person will use every possibility to get rich, and thereafter to get richer.

But if designed as a comprehensive national and international policy, the anti-growth taxation may discourage people from this irrational self-destructive behavior.

According to the economist Richard Layard, a level of taxation on incomes above 60 or 65 percent may bring end to this loop. After this level of expropriation people lose stimuli for extra working, and this saves them from the relentless pursuing of favorable comparing. There is an “environmentally and socially responsible” taxation level, since it is evident that in this world there is enough wealth but not enough jobs for everybody.

On the other hand, public services of good quality – in other words, well financed, increase the satisfaction among the population. On 04.07.2016 I published online preliminary results of a statistical study of 150 countries (in practice, almost all of the bigger countries in the world except the island-based offshore zones). I compared the level of taxation measured as a percentage of GDP of every country with the self-declared living satisfaction according to the Global Values Survey of Gallup International. The Pearson’s coefficient of correlation between taxation and happiness was 0.48 – medium-to-strong, which is even more significant since applied on a global level.
In other words, almost the half of the happiness of one country may be explained by the higher level of taxation.

The higher taxation:

1. guarantees higher revenues for public services, thus higher objective quality of life;
2. destroys incentives for blind pursuing of increasingly more wealth through increasingly more work, making people happier with their families and causes;
3. stifles the rates of economic growth, thus preserving the nature of the planet;
4. turning the human activity away from the economic and monetary spheres to more fulfilling prospects like culture, science, relationships, etc.

It may sound a little bit instructive, but taxes seem to be the key for the sustainable living on this planet.


Day: 2018-08-24
Start time: 11:00
Duration: 00:15
Room: ABF (Lilla sallen)
Track: Politics of Degrowth



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